Don’t let student debt destroy your budget.

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Student loans are a huge burden for many graduates — and the economy. With 44 million people affected and $1.4 trillion in student loans outstanding, there’s a good chance you feel the weight of your own student loans.

So, what happens when you can’t pay your student loans? What are your options? This weeks episode tackles that thorny issue.

 

Concepts

  • A look at some of the reasons there’s so much student debt.
  • Prices to attend college continue to rise.
  • The importance of developing a marketable skill.
  • Stagnant wages make it even harder to repay student loans.
  • Income-based repayment plans for when you can’t pay your student loans.
  • How to talk to your lender about your options.
  • Downsides to deferment and forbearance.
  • Tips for spending less money and boosting your income.
  • The importance of making a plan to pay off your student loans.

This week, our DO NOWs are all about solving the problem when you can’t pay your student loans. Start by getting all your student loan information together, using the list offered by Department of Education. You should also see what programs you are eligible for. If you qualify and are struggling, you can start the loan consolidation and income-driven repayment process.

This week’s listener question deals with the question of what happens if you don’t want to pay off your student loan debt quickly. Does it ever makes sense to keep the student loans for a little longer?

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Resources

College tuition is on the rise.

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Tara Falcone, the founder of ReisUP, was forced to adult at the age of 13 due to difficult circumstances when growing up.

Once in a while, we present Adulting.tv LIVE! Subscribe on YouTube to hear about future events, and share your questions about or suggestions for our next discussions!

Show Notes

Today, Tara Falcone from ReisUp joins Harlan and Miranda. Some of us delay adulting as much as possible while some of us have been forced to be responsible at an age when our friends were busy being young.

Find out why Tara had to start adulting at age 13 and how supporting herself financially changed her life.

Tara Falcone, CFP® is a CERTIFIED FINANCIAL PLANNER™, former Wall Street analyst, and Founder of ReisUP LLC. ReisUP is an early-stage financial services company dedicated to increasing investing education and access for everyday investors. Her mission is to empower people to “rise up” and play a more active role in achieving their financial goals.

Watch the video, recorded live, above, or listen to just the audio using the player below. Don’t forget to subscribe to the podcast!

Hosted byHarlan L. Landes and Miranda Marquit
Produced byadulting.tv
Edited and mixed byHarlan L. Landes
Music bybensound.com

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It would be nice if you could have an easy solution to student loans. You will have to work your ass off to get on top of the situation. Make it happen.

You went to college after high school because, well, that’s what you do and everyone else did it.

You took out student loans to pay your way through school because, well, that’s what you do and everyone else did it.

You went to school, got your degree, and just started your adult life. It’s just that now you have $100,000 in student loan debts and a low paying job.

What do you do? Here are five ideas.

Control current living expenses.

The first thing to do is get control of your current living expenses. The only way to make sure your debt doesn’t grow any faster is to immediately stop acquiring debt.

Calculate your net or true take-home pay per month. This is what you receive after you pay your taxes and benefits.

Then, calculate your total monthly living expenses, including minimum student loan payments, car expenses, entertainment, rent, and every other monthly expense you have.

If your monthly living expenses exceed your take-home pay, you must cut your monthly living expenses, increase your monthly income (more below) or a combination of the two.

It may feel like a cold reality, but you’ll do yourself no favors by overspending what you bring home from month-to-month.

If this means you must continue living at home or find more roommates to lower your rent, then do so. If you must switch from a premium phone company to a discount service company, such as Republic Wireless or Cricket Wireless, do it sooner rather than later.

Look for as many ways as possible to lower your living expenses. Just as every little calorie counts, so does every little cent as you work to get your student loans under control.

Pro tip: Apps such as Mint and Personal Capital can help you manage your budget all from your phone that’s now on a discount service plan.

Increase your income.

This is a two-part step.

First, increase your W-2 income. W-2 income is the income you earn from working for someone else and not contract employment. Because you currently have a low paying job, it’s in your best interest to increase this income.

Tell your current boss that you need to increase your income. Work with your boss to come up with mutually agreed-upon performance expectations to increase your pay in a specified period of time. This time is commonly relegated to your annual performance review, but some companies have more flexibility.

Then, work your butt off to exceed your agreed-upon expectations. Document every success. Save every email with even an ounce of praise. When you have your next performance review, sell yourself so hard it’s impossible for your boss to not give you a raise.

In the meantime, look for other, higher-paying jobs both within your current company and outside if only to improve your interview skills. If you find a higher paying job, use your improved performance and skills to sell yourself for a higher income.

Pro Tip: You can respectfully decline to answer questions about your current pay, but to decline to answer questions successfully you must do so impressively.

Something like, “Thank you for that question, however, I’m going to decline to answer that. I’m focused on the value that I can provide you going forward with my current skills and knowledge. This is different from what I was capable of when I was hired for my last job.”

The second part to increase your income is to make money outside of your primary job. Yes, this means getting a second or even a third job. While that’s painful, it’s not unheard of. Many people have several jobs until they get on their feet. I had multiple jobs at once, myself.

Pro Tip: You don’t have to increase your income with more W-2 jobs. You, too, can become your own boss.

Become your own boss.

I’m amazed by the opportunities of today’s gig economy.

Bloggers and YouTube stars you’ve never heard of are making millions of dollars a year. Peripheral workers, such as social media experts and virtual assistance, are springing up to help those bloggers and YouTube stars — and are making sustainable incomes of their own.

Could you be the next million-dollar internet guru or billion-dollar app creator?

Possible, but not probable.

What is possible is that you could create a nice income for yourself to supplement the income from your W-2 and better tackle your student loans. It’s even possible that you could create enough income from being your own boss that you don’t need a W-2.

Pro Tip: This strategy is playing the long game. An overnight success actually takes years to accomplish. While there are lots of winners in the gig economy, most of them won because they persisted.

Avoid more debt.

Not unlike controlling your living expenses, avoid adding more debt to your portfolio of debt.

Avoid taking on a mortgage, a car loan, if possible, more student loans, loans for a cell phone or furniture, payday loans, or any other opportunity to finance an improved lifestyle. Debt is debt.

The less you take on until your student loan balance is paid off, the better.

Pro Tip: The possibility of increasing your income by earning another undergraduate or graduate degree is enticing. Many employers will pay for some or all an employee’s additional education. Before going back to school, see if your employer will help pay your way. If not, consider bouncing to another employer who will.

Refinance your student loans.

Under certain conditions, you can refinance both federal and private student loans and there are several banks and other businesses to help you.

If approved, you could lower your interest rate, lower your monthly payments, or lower both your interest rate and monthly payments.

Each year, you can apply for an income-based repayment plan. There’s no fee to apply and if you qualify for one of four different kinds of repayment plans, it may help you meet month-to-month expenses until the following year.

Understand the fine print of your income-based repayment plan. For example, if you’re married, you may have to file taxes separately from your spouse. There’s also the possibility that your remaining balance will be forgiven in 20 to 25 years.

This hasn’t happened for anyone yet and there’s the possibility that you’ll receive a tax bill for any amount forgiven, which could be expensive. (Public Service Loan Forgiveness happens sooner, and doesn’t come with a tax bill.)

Pro Tip: Simply lowering your monthly payment will likely mean that you’ll pay more money over the life of your loan. Put as much money that you free up from lowering your monthly payment towards your highest interest debt to pay your debt off more quickly.

Bottom line.

The best way to improve a bad situation is to have an improvement plan.

This five-point plan should get you headed in the right direction. As you proceed, tweak as necessary to continue heading in the direction of paying your student loans off and increasing your income fast.

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College isn’t just about book learning and boozy weekend fun. Use this time to find powerful connections and learn practical skills.

Education for its own sake is admirable. It can expand your worldview, enhance your perspective, and sharpen your mind. It can even make you a happier, more content person.

But will it land you a job?

As important as the college experience can be to developing skills necessary to kick off a successful career, an impressive GPA just isn’t enough to get you hired. You need experience – practical experience.

You want to get more out of your time at school than a diploma and a massive hangover.

Network to make those personal connections.

Experienced career-climbers aren’t lying when they say, “it’s not what you know, it’s who you know.” While I like to think that I’m an awesome and qualified person, the reality is that it doesn’t matter if others don’t know that you are. So many of the jobs I’ve gotten over the years have been due to a personal connection. Someone was willing to step up for me and tell their own peeps that I am awesome.

I wasn’t born knowing all the right people – I developed those ties over the years. I networked through my student newspaper, which brought in alumni to talk about their careers. When older students graduated, they became a new lifeline that we could use to find jobs.

That same wisdom applies to professors, who may have been leaders in their field at one time. A few friends of mine got their first jobs out of college because a professor recommended them to former colleagues.

Talk to career services.

Most colleges have a career services department designed to help you find internships and secure employment. Some have email lists where they send out potential opportunities. Others can sit with you personally to determine the best path.

Remember, these people are typically very busy. They have an obligation to help, but you may need to prod them a bit to find the opportunities you’re looking for.

Don’t give up. Be persistent. Career services have an interest in helping you receive placement, so they’ll be a good resource.

Get resume and interview help.

You Must Do This In College to Help Your Future Career

While you’re at career services, check in and get a little resume and interview help. Most schools offer these services and you should take advantage of them. Your fees pay for it anyway.

A poor resume can doom your chances at finding a job, even if you have great credentials. Shaky interview skills will do the same – even if your resume is a work of art. As someone who’s hired interns and conducted interviews, I’ve seen how a stand-out candidate can lose all validity over the course of an interview.

Learning great interview skills in college is more important than acing your econ final, so work hard to develop that skill. You can also practice with your friends and use common interview questions as your guide.

Shop your resume around and gather feedback from as many people as possible. You never know who might catch the one typo you missed.

Find internships.

I’m not sure where I would be in my career if it weren’t for all the internships I had during college. Internships are part of the journalism culture, but they’re available in almost any discipline. Some are paid, but many are done just for college credit.

While it sucks to work for free, don’t let that discourage you. Consider it an investment in your future career. Just a week ago, I was talking to a prospective client about a summer internship I had. Coincidentally, he had been one of the top editors when I was there. That common ground proved my credibility, even though it’s been six years since the internship concluded.

You can find internship listings online, but it never hurts to talk to a company that you admire. Even if they don’t have a formal internship program, they may be willing to make an exception for a passionate young professional.

College isn’t just about book learning and boozing it up on the weekends. It’s also about developing practical skills and connections that can help you with a solid start in life.

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Do you have a true concept of what is “real” about money after college?

I had plenty of money in college. I was rolling in it. My parents had given me a credit card so I could charge anything I needed, like groceries, utility bills, oil changes, and more. They paid my rent and didn’t ask questions when I spent more than $250 a month on food.

I worked during college, too – sometimes two jobs at once. Those jobs helped me buy what I wanted (which was a lot). If you’ve ever been to a college town, you know that there’s a plethora of shopping options nearby. Within a five-minute walk, I could access boutiques, vintage shops, and record stores.

If I wanted food, I could get anything delivered. Even if I had a fridge full of groceries, I’d get pizza, pad thai, or fried chicken delivered to my house. In a given month, I’d spend more than $100 on eating out.

I never told myself “no.”

That is, until I graduated.

Welcome to the real world.

The summer following graduation, I had an unpaid internship and a part-time job. For the first time, money was tight. I was paying my own rent that summer and commuting an hour one way (this is back when gas was close to $4 a gallon).

Suddenly, I had to reign in my spending. I said no to going out and shopping. I read blogs about couponing, cooking cheap meals, and getting free stuff.

That summer was a wake-up call. I couldn’t keep spending the same way. When I finally got a full-time job and started being totally responsible for all my bills, I realized how important it was to budget. I was only making about $28,000 a year, and after bills and student loan payments, there was hardly anything left.

Even though my budget was cramped, I decided I wanted to pay off my student loans early. I started tracking every dollar religiously. I was now saving money with the same intensity that I had spent money in college.

I found freebies, coupons, and special deals. I shopped at Aldi — my favorite discount grocery store — and stocked up on the essentials. I avoided eating out and always brought my lunch to work, even when it was Chef Boyardee ravioli.

In 2012, I created my blog to chronicle my debt payoff progress. I wanted to see if I could actually pay off my debt in three years. I thought my blog could serve as inspiration to anyone else trying to do the same thing.

A year after I started my first job after graduation, I got a new job and a small pay raise. When my rent went down, I put the difference toward my loans. Any time my expenses decreased, I just added that money toward my debt.

When my then-boyfriend and I moved with another friend, my rent was cut in half. Again, I put the amount I was saving toward paying down my student loans. That year, half of my paycheck went toward my debt. In November 2014, I made my last student loan payment.

Friends and family members started asking how I paid off my loans so quickly. I directed them to my blog, where I had written about my debt payoff journey. But soon I decided that I wanted to create one simple place where people could go and learn how to pay off their own student loans.

That’s why I created the Student Loan Knockout: A 20-Day Journey to Debt Freedom, my self-paced online course where you can learn the steps I took to become debt free. There are action items for each module and basic steps you can follow. This is not a course for finance experts. It’s for people like you feeling overwhelmed by your student loans and wondering where to turn.

In the real world of money after college, you need to make tough choices and get serious about your budget. Even though the road to debt freedom was filled with sacrifice, being debt free feels sweeter than any shopping spree or take-out meal.

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